Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Friday, February 16, 2007: This
week, I've been inundated with startups. Neat stuff. Neat ideas. Neat inventions.
But, oih, so little attention to marketing. The 1-in-a-1000 rule applies. You
kiss 1000, before you find ten princes you sleep with (i.e. invest in).
And, in the end, only one prince makes it. That's the gruesome statistics.
They don't lie.
Vision (ISV) finally did its deal. It announced
a patent (and hence marketing) agreement with
Pfizer. ISV's stock has appreciated significantly since I first
recommended it. You should have a handsome long-term capital gain. Take the
money and run. Thank you Harry.
-- Part 1: From today's New York Times:
Prices for single-family
homes fell in more than half of the nations 149 biggest metropolitan
areas in the last three months of 2006, according to data released yesterday
by a trade group for real estate agents.
from the National Association of Realtors show that the housing market weakened
noticeably in many parts of the country at the end of last year and indicate
that suggestions by some industry officials that the market has hit bottom
could be premature. In the previous quarter, prices fell in one-third of all
price declines were concentrated primarily in two kinds of cities: the formerly
booming markets along the coasts and in the Southwest, and in Midwest and
Northeast cities hurting from the loss of manufacturing jobs. The biggest
declines, for instance, were in Florida Sarasota-Bradenton (down 18
percent), Palm Bay-Melbourne (17 percent) and Cape Coral-Fort Myers (11.7
percent). The declines in prices were especially steep for condominiums. ...
the median price of single-family homes fell 2.7 percent, to $219,300.
and Salt Lake City topped the list of metropolitan regions where prices increased
in the fourth quarter. Broadly speaking, prices were strongest in the Northwest
and in some parts of the South.
At the same
time, the number of homes sold fell in 40 states and in the District of Columbia.
Nevada and Florida each reported declines of more than 30 percent; in Arizona,
Virginia and the District of Columbia, sales fell by more than 20 percent.
Nationwide, sales fell 10.1 percent in the fourth quarter from the same period
in 2005, to an annual pace of 6.24 million.
in six states Alaska, Mississippi, Kentucky, Texas, Arkansas and Illinois
and were flat in Utah. The Realtors did not have enough data on sales
in Idaho, New Hampshire and Vermont.
-- part 2. What really happened to housing?
From deep down in the trenches, Debbie Warren, an erstwhile successful mortgage
broker and now manager of mortgage brokers, reader
and long-time friend, reports:
housing boom happened because the average Joe sold his stocks and investments
and bought investment properties ("they're not making any more land,
Joe!!"). Joe was counting on the momentum of the upward market to make
a fast buck on flipping the properties. Everyone was doing it. Then suddenly
in December 2005, nobody had money to buy more and the lights went off. Now
Joe's retirement funds are stuck in real estate where values are declining,
and he has a big mortgage with interest.
Some of my realtor friends were holding mortgages on 30 investment properties
with no tenant in any of them. They were no longer able to afford to wait
out the market and the number of houses on the market went through the roof.
Time to sell went from 8 days to a year and a half in less than 2 months here
(Southern Florida) where I am.
We currently have an inventory of over 3 years. Salaries don't support the
income to purchase the homes even as primary residences, and 40% of the homes
in this county (what's its name?) were owned by investors. Currently, this
area is one of the worst in the country because it had the largest gains in
the country when the values were appreciating so rapidly. It's still quite
depressing to see.
One realtor's office had a grand opening about a week ago (they moved) to
right in front of WalMart, at the major highway, lots of press coverage and
one of the best areas to live, and the next 2 days brought in ZERO walk-in
or phone call traffic. You want to talk about sobering. Those guys are looking
at moonlighting as MonaVie juice salesmen or taking a job bagging groceries
The buyers are
there, but not in numbers that they used to be, and they have LOTS of houses
to choose from, and they don't want investment properties in a declining market.
There might be
a little good news here: If you're thinking of gifting your house/s to your
children (and hence avoiding estate taxes), you need an appraisal. That appraisal
must have been done within six months of the gift. You could legitimately claim
a lower value on your house and save some gift taxes or transfer taxes. You
need an appraiser who understands what you're trying to do.
P.S. It seems
Joe is back in the stockmarket.
can get into this metziah for pennies, not millions. "Metziah"
is Yiddish for a false bargain -- such a bargain! Something that looks cheap
but isn't. The latest metziahs being peddled to investors by Wall Street are
variations on the fund of funds themes, typically:
1. "To get directly into this exclusive fund, you need to invest $25 million.
But we have an exclusive distribution deal with the fund manager. We can get
you in for $250,000."
2. "This fund invests in five others. You get broad diversification (that's
the theory), without the pain of having to reach the minimums on five funds
and manage your investments in each one."
is one problem with these metziahs. It's called "fees." They're
typically outrageous. Call them fees on fees on fees. And more fees. First,
the fund that does the bundling of all the little monies will have fees. There'll
be a one-time sales commission and then on-going "management" fees.
Then the underlying fund will have fees. Then the managers will have fees and
The whole deal is confusing -- some might say deliberately so. The fund's prospectus
will typically report its recent rate of return as a "gross"
number, e.g. 18% a year. That's not the number investors like you and I will
get. We get "net." And it's always a lot lower. I have
one such fund in front of me where a gross IRR of 8.3% a year (since
1997) was reduced to a net IRR of minus 0.3%. In another case, a gross
IRR of 9.6% a year was reduced to 0.5% by the fees. At least you
and I, small investors, earned something, even though it was far less than your
local savings bank. I have another fund's prospectus that doesn't even show
net IRR. In a tiny footnote, it says,
of capital and gross IRRs are presented on a gross basis before
management fees, carried interest, taxes, transaction costs in
connection with the disposition of unrealized investments and other expenses
to be borne by investors in a fund, which will reduce returns significantly.
... Typical private equity fees at minimum would include an annual management
fee of at least 1.5% of committed capital or invested capital and a carried
interest of at least 20% of profits, as well as other fees and expenses. In
addition, the net IRR would be further reduced by fees and expenses of the
type that will be incurred by investors in the Partnership.
I don't know what
all that means. My overly sensitive (and large) nose tells me that these funds
are being created more for Wall Street's pleasure than for mine.
Photoshop Lightroom looks truly super: Digital
photography's peril is the ease of shooting zillions of "free" photos.
Managing them, not making them, then becomes the issue. From what I'm hearing
and seeing, Adobe's new Photoshop Lightroom is THE answer to managing zillions
of digital photos. It was designed for professional photographers. You can apply
one set of changes to one photo and have the program automatically apply them
to all the other photos. That one feature saves mega time. Lightroom goes on
sale shortly for $199. Right now you can download a beta of it for free at present.
The Traders Expo is on this weekend in New York: Friends who are
going say it's great. It runs from Saturday through Tuesday lunchtime. Visiting
the exhibit hall is free. For more, click
Nicole Smith, dead at 39:
Did you have
breast augmentation? asked Larry King redundantly, bow tie a-quiver, when
she appeared on his show. Up or down? Both. Aren't
there downsides to it? he asked. Yes, Ms Smith said; they hurt her back.
But, she might have added, it did no harm to flaunt them in gentleman's clubs
in Houston in the half-dark, where ancient oil tycoons would try to grapple
them. One such withered specimen, with a twinkle in his rheumy eye, made the
attempt in October 1991; three years later, she married him. For the full obituary
in today's Economist (of all places),
can't figure if these are sad, or deliberately funny:
Chicago Cubs outfielder Andre Dawson on being a role model: "I
wan'all dem kids to do what I do, to look up to me. I wan' all the kids to copulate
New Orleans Saint
RB George Rogers when asked about the upcoming season: "I want to rush
for 1,000 or 1,500 yards, whichever comes first."
On hearing Joe
Jacobi of the 'Skins say: "I'd run over my own mother to win the Super
Bowl," Matt Millen of the Raiders replied: "To win, I'd run over Joe's
Torrin Polk, University
of Houston receiver, on his coach, John Jenkins: "He treats us like men.
He lets us wear earrings."
and former player Joe Theismann: "Nobody in football should be called a
genius. A genius is a guy like Norman Einstein."
player at the University of Pittsburgh : "I'm going to graduate on time,
no matter how long it takes."
Dan Duva on Mike Tyson hooking up again with promoter Don King: "Why would
anyone expect him to come out smarter? He went to prison for three years, not
Stu Grimson, Chicago
Blackhawks left wing, explaining why he keeps a color photo of himself above
his locker: "That's so when I forget how to spell my name, I can still
find my clothes."
Lou Duva, veteran
boxing trainer, on the Spartan training regime of heavyweight Andrew Golota:
"He's a guy who gets up at six o'clock in the morning regardless of what
time it is."
North Carolina State basketball player, explaining to Coach Jim Valvano why
he appeared nervous at practice: "My sister's expecting a baby, and I don't
know if I'm going to be an uncle or an aunt."
basketball coach at Texas A&M, recounting what he told a player who received
four F's and one D: "Son, looks to me like you're spending too much time
on one subject."
Have a great weekend. Stay warm. Monday is a holiday. It's President's
Day. See you Tuesday.
This column is about my personal search
for the perfect investment. I don't give investment advice. For that you have
to be registered with regulatory authorities, which I am not. I am a reporter
and an investor. I make my daily column -- Monday through Friday -- freely available
for three reasons: Writing is good for sorting things out in my brain. Second,
the column is research for a book I'm writing called "In Search of the
Perfect Investment." Third, I encourage my readers to send me their
ideas, concerns and experiences. That way we can all learn together. My email
address is .
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